At Specialist Mortgages, we often get asked about the reasons why a wealthy investor would choose to purchase a property with a high net mortgage instead of purchasing it outright with cash. There are a number of credible reasons for doing this and with more and more investors choosing to take out a high net mortgage to purchase a property, we thought we would take a look in a little more detail at some of the key factors that drive this behaviour.
In our experience, wealthy investors try to remain as liquid as possible which is why tying up large amounts of cash in a single asset isn’t generally favourable for these types of investors. The key thing to remember is that by not risking a significant sum of money held in a single property, investors are able to use these funds to invest in a variety of other diversified assets.
As we have discussed in previous posts, we do expect to see a rise in interest rates over the next 2 years but these rates are still substantially lower than what they have been in the past. Indeed, at this point in 2008, the base rate was currently sitting at 5%. With the market now in a much more stable position, high net investors are opting for interest-only mortgages.
While interest-only mortgages contain a much greater element of risk for both the lender and the investor, the appreciating value of the property is likely to outweigh the interest charges. This essentially means that investors can use the sale of the property as the repayment vehicle which will provide sound security on the value of the loan.
As you can see, the recovery of the property market has made interest-only mortgages readily available to wealthy investors who are looking to purchase property. However, it is important to note the role that trophy assets play in the marketplace and to understand that these assets are perhaps not appreciating at the rate that they once were.
Essentially, there is no guarantee that buying a property with cash – particularly one in an area such as Central London – will pay off in the long term and when you consider the fact that these properties are taking so long to sell, you can begin to see why a high net mortgage is such an attractive option to investors as the borrowing is relatively cheap especially when taken out on an interest-only basis.
To sum up, wealthy investors tend to opt for high net interest-only mortgages as this offers significantly less risk than simply buying a high-value property outright. This allows the investor to safeguard their liquidity by freeing up cash for other investments such as stocks & shares which often offer higher yields while being much more accessible.
Of course, getting the correct advice is essential so whether you are an experienced investor or you are looking to invest in property for the first time, we can help! We specialise in large loans and portfolio finance so call us on 0345 873 1234 and we can discuss your options!